James V. Kimsey Interview (page: 4 / 6)

James V. Kimsey: I'd already spent a number of years in the restaurant, real estate and banking businesses. An old classmate of mine was a venture capitalist, the same one that went to Vietnam with me. He and I would take our kids on trips every summer. And this time, I guess it was 1982, we were going down the Colorado River to the Grand Canyon, and he told me about a company in the Washington, D.C. area he was investing in, that downloaded video games over the telephone.

He told me that Citicorp and a number of big name venture capital firms were investing in this. He asked me if I would like to invest in it and look it over, because I was so close to it geographically. . Because of that geographic proximity, I got more and more involved in the company as it got in trouble, like Bre'er Rabbit and the Tar Baby. This was a company that had $20 million of venture capital money and trade creditor money invested in it.

At the time, I was part of a group taking a bank holding company public and I got a questionnaire from the Securities and Exchange Commission asking me, among other things, if I had ever been involved in a company within two years of its going bankrupt. This was a standard form that everybody had to fill out. I thought to myself, "This may be the last time I'm ever able to answer no to that question." So I became very motivated to keep this company out of bankruptcy.

So with others' help, I went off to try and sell it to Apple. At the time, Jobs and Scully were rolling around on the floor, so I couldn't get their attention. So I went to a company called Commodore. I like to remind everybody at America Online that Commodore was a billion dollar company at the time, the primary main presence in the home computer market. And of course, now they're gone, liquidated for the benefit of creditors.

The guy that ran Commodore at the time was not the one that got it into bankruptcy. He and I hit it off. He was too smart to buy this company, which was called Control Video, but rather proposed that we do a joint venture. There were people in Commodore that understood how we could link up the technology of the predecessor company with some technology of a little company up in Troy, New York and come up with an on-line service that we could put on the Commodore 64 and distribute with the Commodore computer.

So, trying to jury-rig all these technologies together, trying to come up with a legal maneuver in which we could create a new entity, and convincing the venture capitalists they had to come up with yet more money was no mean feat. I had a lot of help from some of the people at Commodore. The venture capitalists -- most of whom I still stay in touch with and have become really good friends with -- helped convince their committees that it was worth putting more money into this project.

You feel like you're under siege, you're under fire. You're at a point where, if you fail to put this Rube Goldberg, very complex set of ingredients together -- that it's gone, that it craters, it's bankrupt, sort of the worst of all possible outcomes, that everything goes away -- you know, you've got the embarrassment and shame of being involved in a company and letting it fail. And this harks back to the "No excuse, Sir." I think if there's one quality that I had to point to that contributes to success, it's the same quality the little nuns had that have kept that orphanage alive for the last 32 years. It's perseverance. And, most people don't know that America Online is over 15 years old because they only see the last few years that the Internet has come in to sort of public cognition.

During these last 15 years there were many, many times that people would look at me and say, you know, "Why are you fooling around with this thing? Why do you think this is ever going to amount to anything?" In the early days, when I was forming the company, Prodigy had already been started by IBM and Sears. And, they would look at me and say, "My God, how are you ever going to compete with IBM and Sears?" And more recently they've said, "How are you going to compete with Microsoft?" A big company that has a sort of monolithic hegemony in this area that will stop you.

James V. Kimsey: Because we had no resources, we were forced, like a huddled band of refugees, to use our wits, figure out how to get other people to carry our water for us.
I knew the guy that ran Prodigy; he was an old IBM hand, a nice fellow. Steve Case and I would go up to White Plains to see him, and he's patronize us, but in a very friendly way. He was a very avuncular kind of fellow. He had big board rooms and a big staff; he had hired a thousand people, which turned out to be a huge burden. They made decisions by committee, while we were able to sit down and keep ourselves in the center of this sort of technological mainstream like a little speedboat.

Is that where the future of business development in the technology sector is going to be? What's going to define success: innovative partnerships, alliances, the leveraging that you've talking about? It seems like many companies start that way and, almost as a natural outgrowth, develop this huge bureaucracy and then the whole company tanks.

James V. Kimsey: This is the real challenge. IBM is a perfect example of a company that thought it was the center of the universe. Because of the hubris that surrounds that view of yourself, they woke up one day and found that the river had gone the other way and their company had washed up in the brackish backwaters of technology and the economy.

This is a challenge for any big company, and now America Online is a big company. Between Steve Case and Bob Pittman have done a terrific job of understanding the perils of thinking that you're the center of the universe. They recognize that there are people just like us sneaking through the woods and gathering strength. When they break out into the open, they're going to be so big that they will beat you. I'm mostly out of the day to day operations, but we try to be very aware that these technologies are being worked on and invented and improved all the time, not by us, but by others. We need to reach out and embrace these technologies. Folks are coming up with things that are going to make our company better and stronger over time. We need do deals with them.